Yes this can be construed as a lawsuit settlement and is a taxable event. According to IRS Revenue Code (IRC) Section 61, "all income is taxable from whatever source derived, unless exempted by another section of the code". Here is an IRS link that covers this subject more in detail.
To report in Turbo Tax Online if you do not receive a 1099-MISC for the settlement disbursement.
- Go to federal
- Wages and Income
- Less Common Income
- Miscellaneous income
- Other reported Income
If you receive a 1099-MISC.
- Go to federal>wages and income>other common income>income from 1099-MISC
- Enter the 1099-MISC
- Next screen will ask you for a description of the income
- Next screen asks if any of this uncommon income applies. Here you can say this was from a lawsuit settlement..
- Next question asks if this income is for back wages. You will say no.
- Finish the rest of the interview.
Keep in mind, you may receive a 1099-INT for the interest and a separate 1099-MISC for the settlement. These are reported separately.
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